Puget Sound Office Investment Hits Milestone

Office investors know it is an opportune time to be a landlord in the Seattle-Bellevue market and are on a tear.

The region has clearly become a top market nationally in the eyes of investors and is pulling in “a lot of new institutional and private funds,” Seattle-based commercial real estate broker Brian Hayden said.

For the first time since 2012, office investment transactions have exceeded the $3 billion mark in Puget Sound. According to commercial real estate services firm JLL in its Seattle-Bellevue Office Insight third quarter report, more than $3.3 billion in sales volume has happened in the region this year—an increase of 90 percent over all of 2014.

Quickly pushing the market toward that milestone was the acquisition of the 76-story Columbia Center for $711 million, or about $460 per square foot, in the third quarter by Hong Kong-based private equity fund manager Gaw Capital Partners.

The market also set a new record for pricing when Glendale, Calif.-based American Realty Advisors in July acquired 2201 Westlake Ave. in Seattle’s red-hot South Lake Union neighborhood for $251 million, or $792 a square foot. The seller of the 12-story, fully leased office/retail property was Seattle-based Vulcan Real Estate.

In discussing the acquisition at that time, American Realty Senior Director Drew Hess provided some insights behind the region’s big appeal to investors.

“Overall, this type of property checks off all of the boxes—great urban location, great tenants and new high-quality construction and amenities,” Hess said in a news release. “Tenants are seeking creative environments where they can not only recruit talented employees but also locate as many people on one floor as possible, making the large open-floor plates flexible, efficient and collaborative. The open ceilings and construction features also provide lower ongoing re-tenanting and operating costs, which in turn lead to higher net operating income for investors.”

Hayden noted that much of the market’s growth and positive absorption, which drives up values and investment, is coming from technology tenants. In turn, he said, “landlords’ strategy is to convert a building to intentionally create tech space.”

Biotech companies also represent a major tenant market. “But there are more life-science tenants wanting space than there is space available,” Hayden said.

According to JLL’s office report, the tech sector accounted for 46 percent of the third quarter’s key leasing activities. The quarter saw nearly 1.3 million square feet of space taken, JLL also said, and net absorption was on track to surpass 2 million square feet for the third year in a row.